Thousands fewer families getting support as unemployment rises

People who lose their jobs also lose some working for families tax credits. Photo / Supplied

The number of families receiving one of the main Working for Families tax credits is down more than 25,000 since the pandemic, falling from 187,000 in the 2021 tax year to 161,000 in 2023.

However, an economist specialising in child poverty warns the fall in numbers is not due to families no longer needing the support of the credit. The In-Work Tax Credit (IWTC) is worth up to $100 a week for families with 1-3 children and more for larger families.

Instead, it could be the opposite.

The IWTC is only available to families who work. As the Reserve Bank has tightened interest rates, increasing the ranks of the unemployed, many parents receiving the credits are likely to have been laid off, losing not just their jobs, but their eligibility for the IWTC.

The unemployment rate rose from a low of 3.2% in the December quarter of 2021 to 4% in the same quarter in 2023. If there is a trend, it will be more obvious in the next set of data. The unemployment rate for the last quarter was 4.8%

The figures for the 2024 year were not published.

Auckland University Associate Professor Susan St John said the fall in the number of people receiving the credit was likely a result of the unemployment rate rising, and the fact that inflation had seen families’ incomes increase to a level at which they could no longer claim the tax credit — despite the fact that in nominal terms, they were no better off thanks to the high level of inflation seen in recent years.

She said the Family Tax Credit, a credit received by all families below a certain income, whether they work or receive a benefit, should be increased and the IWTC abolished.

She said IWTC should simply be added to the Family Tax Credit so that families receive support — working or not.

“It should just be added to the family tax credit. It doesn’t work in recession.

“They’re not choosing to be unemployed these extra families who are going on to benefits they’re victims of the recession,” she said.

Green Party Social Development spokesman Ricardo Menendez-March said the Working for Families system was not “adequately supporting families in paid employment and fails to recognise that caregiving is work, by excluding people on income support from receiving the In Work Tax Credit”.

He, too, blamed inflation and rising unemployment for a decrease in the number of families getting support.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.